Fitch affirms Malaysia’s rating at A- with stable outlook, but heed the economic warning


Image result for Fitch ratings logo/images
 


Fitch Ratings

 

KUALA LUMPUR: Fitch Ratings has affirmed Malaysia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A-‘ with a Stable Outlook.

According to a statement posted on the interantional rating agency’s website on Thursday the key rating drivers were its strong and broad-based medium-term growth with a diversified export base.

However, it also was concerned about its high public debt and some lagging structural factor.

Main points:

* GDP to grow at 4.4% in 2019 and 4.5% in 2020

* Global trade tensions to impact economy

* Private consumption to hold up well, public investment to pick up

* Outlook for private investment is more uncertain

* Weak fiscal position relative to peers weighs on the credit profile

* General government debt to fall from 62.5% of GDP in 2019 to 59.3% in 2021

* Malaysia relatively vulnerable to shifts in external investor sentiment

* Fitch expects another 25bp rate cut in 2020 on the back of continued external and domestic uncertainty.

* Banking sector fundamentals remain broadly stable

Fitch said Malaysia’s ratings balance strong and broad-based medium-term growth with a diversified export base, against high public debt and some lagging structural factors, such as weak governance indicators relative to peers.

The latter may gradually improve with ongoing government efforts to enhance transparency and address high-profile corruption cases.

Fitch expects economic growth to slightly decelerate in the rest of this year as a result of a worsening

external environment, but to hold up well at 4.4% in 2019 and 4.5% in 2020.

Malaysia is a small open economy that is integrated into Asian supply chains, but it also has a well-diversified export base, which helps cushion the impact from a potential fall in demand in specific sectors.

Global trade tensions are likely to have a detrimental effect on Malaysia’s economy, as with many other countries, but this may be partially offset by near-term mitigating factors, such as trade diversion, in particular towards the electronics sector.

Private consumption is likely to hold up well and public investment should pick up again in the next few years after the successful renegotiation of some big infrastructure projects, most prominently the East Coast Rail Link.

However, the outlook for private investment is more uncertain. FDI inflows were strong in the past few quarters, but investors will continue to face both external trade and domestic political uncertainty.

The Pakatan Harapan coalition took office in May 2018 with very high expectations. It has set a number of policy initiatives in motion, but holds only a small majority in parliament and has seen its previously high public approval rates fall significantly.

Uncertainty about the timing and details of the succession of the 94-year old Prime Minister Tun Dr Mahathir Mohamad also continues to linger.

A weak fiscal position relative to peers weighs on the credit profile. The government’s repeal of the Goods and Services Tax (GST) and replacement with the Sales and Service Tax (SST) soon after it took power has undermined fiscal consolidation.

The government aims to offset the revenue loss through measures to strengthen compliance, the introduction of a sugar tax and an increased stamp duty. Its fiscal deficit target for 2019 of 3.4% of GDP, which we believe will be met, includes a special dividend from Petroliam Nasional Berhad (PETRONAS, A-/Stable).

Political pressures and growth headwinds could motivate the government to increase its current spending, but we believe that if it does so, it would seek additional revenues or asset sales to contain the associated rises in the deficit and public debt.

Fitch estimates general government debt to gradually decrease from 62.5% of GDP in 2019 to 59.3% in 2021.

The debt figures used by Fitch include officially reported “committed government guarantees” on loans, which are serviced by the government budget, and 1MDB’s net debt, equivalent at end-2018 to 9.2% and 2.2% of GDP, respectively.

The government guaranteed another 9.2% of GDP in loans it does not service. The greater clarity provided by the government last year on contingent liabilities negatively influenced the debt ratios, but this is partly offset by the improved fiscal transparency.

Significant asset sales, as intended by the government, could result in a swifter decline in the debt stock than its forecast in its base case.

Progress in implementing reforms that institutionalise improved governance standards through stronger checks and balances, and greater transparency and accountability would strengthen Malaysia’s business environment and credit profile.

The World Bank’s governance indicator is still low at the 61st percentile compared with the ‘A’ category median of 76th.

An important change is that all public projects are now being tendered, which increases transparency, creates a level-playing field and should bring down project costs. Prosecution of high-profile cases may also help reduce corruption levels over time.

Malaysia has been running annual current account surpluses for the past 20 years, and Fitch expects it to continue to do so in the next few years, even though the surplus is likely to narrow to below 2% of GDP.

Foreign-reserve buffers were US$102.7 billion (4.7 months of current account payments) at end-June 2019, while other external assets are also significant, including from sovereign wealth fund Khazanah.

Malaysia is nonetheless relatively vulnerable to shifts in external investor sentiment, partly because of still-high foreign holdings of domestic government debt, although these have fallen to 21% from 33% three years ago.

Moreover, short-term external debt is high relative to reserves, although a significant part of this constitutes intra-group borrowing between parent and subsidiary banks domestically and abroad, reflecting the open and regional nature of Malaysia’s banking sector.

Monetary policy is likely to remain supportive of economic activity, after Bank Negara Malaysia’s (BNM) reduced its policy rate by 25bp to 3.0% last May, which seemed a pre-emptive response to increased external downside risk.

Inflationary pressures are limited with headline inflation at 0.2% in May 2019, still low due to the repeal of the GST and lower domestic fuel prices.

Fitch expects another 25bp rate cut in 2020 on the back of continued external and domestic uncertainty.

Banking sector fundamentals remain broadly stable. Elevated, but slightly declining household debt at 83% of GDP and property-sector

weakness should be manageable for the sector, but present a downside risk in case of a major economic shock.

The sector’s healthy capital and liquidity buffers, as indicated by the common equity Tier 1 ratio of 13.4% and liquidity coverage ratio of 155% at end-May 2019, help to underpin its resilience in times of stress.

SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO)

Fitch’s proprietary SRM assigns Malaysia a score equivalent to a rating of ‘BBB+’ on the Long-Term Foreign-Currency (LT FC) IDR scale.

In accordance with its rating criteria, Fitch’s sovereign rating committee decided not to adopt the score indicated by the SRM as the starting point for its analysis because it considers it likely that the one-notch drop in the score to ‘BBB+’ since March 2018 will prove temporary.

Fitch’s SRM is the agency’s proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR.

Fitch’s QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.

RATING SENSITIVITIES

The main factors that, individually or collectively, could trigger positive rating action are:

* Greater confidence in a sustained reduction in general government debt over the medium term.

* An improvement in governance standards relative to peers, for instance through greater transparency and control of corruption.

The main factors that could trigger negative rating action are:

* Limited progress in debt reduction, for instance due to insufficient fiscal consolidation or further crystallisation of contingent liabilities.

* A lack of improvement in governance standards

KEY ASSUMPTIONS

* The global economy and oil price perform broadly in line with Fitch’s Global Economic Outlook (June 2019). Fitch forecasts Brent oil to average USD65 per barrel in 2019, USD62.5 in 2020 and USD60 in 2021.


The full list of rating actions is as follows:

Long-Term Foreign-Currency IDR affirmed at ‘A-‘;

Outlook Stable

Long-Term Local-Currency IDR affirmed at ‘A-‘;

Outlook Stable

Short-Term Foreign-Currency IDR affirmed at ‘F1’

Short-Term Local-Currency IDR affirmed at ‘F1’

Country Ceiling affirmed at ‘A’

Issue ratings on long-term senior unsecured local-currency bonds affirmed at ‘A-‘

Issue ratings on global sukuk trust certificates issued by Malaysia Sukuk Global Berhad affirmed at ‘A-‘


But heed of Fitch’s economic warning

 

Fitch Ratings has affirmed Malaysia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'A-' with a Stable Outlook.
Fitch Ratings has affirmed Malaysia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A-‘ with a Stable Outlook.

The international Fitch Ratings has given us a warning on the outlook for the Malaysian economy, which we should not ignore.

In preparing for the 2020 Budget, the government’s economic and financial planners should take heed of this friendly warning and act sooner rather than later. We should not let this warning pass, without having more consultations with Fitch, on how serious their constructive criticism could turn out to be.

Fitch Ratings has affirmed Malaysia’s long-term foreign currency issuer default rating at A-, with a stable outlook. But we must seriously take note of the several reservations that Fitch has made, and consider and monitor them, to remain on even keel and progress further.

What are these warnings?

High public debt

The national debt is now confirmed by Fitch to be high. By whatever standard of measurement used – by us, the IMF or the World Bank and other agencies – there is now consensus that our debt is indeed high, although still not critical.

However, the debt has to be watched closely. We have to ensure better management of our budget expenditures and strive to strengthen our budget revenues, to reduce the pressure to borrow more in the short to medium term.

Some lagging structural factors

The structural factors would refer to our need to raise productivity, increase our competitiveness and meritocracy and strengthen our successes, in combating corruption and cronyism.

How far have we advanced to deal effectively with these longstanding structural issues? In the minds of our foreign and even domestic investors, how successful have we been compared to the previous regime?

Fitch expects the economy to slow down to 4.4% this year and 4.5% in 2020. With the US -China trade war looming large and the general world economic uncertainty, investors can get even more jittery and hold back their investment plans. Thus, the low economic growth rates for this year and ahead should not be ruled out.

If the economy softens further to around 4% per annum, the implications of unemployment, and especially for our graduates, could be worrisome. The small and medium businesses and farmers and fishermen and smallholders in our plantation industries could suffer much from any slowdown.

But we are still slow and are struggling in trying to restructure the economy. We have not yet adopted major changes of transformation of the economy, which is largely raced-based to the vital requirement, to become more needs-based in our policies and implementation.

We need a New Economic Model but it has been difficult to adopt it as soon as possible.


Weak governance relative to peers

To be fair, many measures have been taken to strengthen the institutions of government. We have seen this in the parliament select committees, the Election Commission, the MACC and the civil service and other institutions.

We cannot do too much too soon, as good governance takes much longer to restore and build, after several decades of neglect in the past. But our people and investors are somewhat impatient for more rapid changes for better governance.

Fitch has, however, subtly warned us to compare our “weak governance relative to our peers”. Thus, we have to take note of the more rapid progress made by our neighbouring countries in Asean, like Vietnam, Thailand and Indonesia and, of course, Singapore, to measure our real success in good governance.

Investors have the whole world to choose from, to put their money where their mouth is. They also need not look at the comfortable physical climate and tax incentives alone to be attracted to invest in Malaysia.

Racial harmony, religious understanding and political stability are also major considerations for both domestic and foreign investors and professionals. This is where the reduction of the brain drain is important. But we continue to have strong outflows of brain power, which is debilitating.

Fitch warns that the PH government holds only a small majority in Parliament and has seen its previously high public approval rates fall significantly. Fitch’s assessment is quite correct. This has been due to too much politicking and allegation of sex scandals. All this does not give confidence to investors and even consumers who will be dampened in their enthusiasm to increase consumption and investment.

Fitch Ratings has subtly and politely warned us of the challenges we are facing. It has also emphasised in its usual guarded fashion the essential need for us to take heed of their advice and warnings, to make the necessary socio-economic and political adjustments, changes and even transformation, without undue delays.

We could face a real slowdown all round if we don’t consolidate our strengths to overcome our lingering weaknesses to forge ahead for a better Malaysia in the future – for all Malaysians.

By Tan Sri Ramon Navaratnam, chairman of the Asli Centre for Public Policy.

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Recession? No, not this year 2019


 

THE influential International Monetary Fund (IMF) has predicted slower global growth this year on the back of financial volatility and the trade war between the United States and China.

Turkey and Argentina are expected to experience deep recessions this year before recovering next year.

China, apart from fighting the trade war, is also experiencing its slowest quarterly growth since the 1990s, sending ripples across Asia. In the last quarter of 2018, China recorded an economic growth of 6.4%, which is the third consecutive quarter of slowing growth.

This has led to fears of China’s economy going into a hard landing and it possibly being the catalyst to spark global economic turmoil.

After all, it has been more than 10 years since the world witnessed the last recession in 2008 that was caused by a financial crisis in the US. If we are to believe the 10 to 12-year economic turmoil cycle, the next downturn is already due.

However, the economic data so far does not seem to suggest that the world will go into a recession or tailspin this year.

The bigger worry is what would happen next year.

The narrowing spread between the two-year and 10-year US Treasury papers would lead to banks being more selective in their lending. It is already happening in the US.

The impact is likely to be profound next year. When banks are more selective in lending, eventually the economy will grind to a halt.

But that is the likely scenario next year, assuming there is no fresh impetus to spur global growth.

At the moment, there is a significant amount of asset price depression due to slowing demand. The reason is generally because of the slower growth in China and the trade war.

China has fuelled demand for almost everything in the last few years. Companies and individuals from China drove up the prices of everything – from property and valuations of companies to commodities.

China itself is experiencing a slowing economy and the government has restricted the outflow of funds. Its overall debt is estimated at 300% of gross domestic product and banks are reluctant to lend to private companies for fear of defaults.

China’s manufacturing sector has slowed down because of the trade war. Companies are not prepared to expand because they fear the tariffs imposed by the US.

Nevertheless, the world’s second-largest economy is still growing, albeit at a slower pace. A growth rate of 6.4% per quarter is still commendable, although it is far from the 12% quarterly economic growth it recorded in 2011-2012.

The US, which is the world’s largest economy, is also facing slower growth this year. The Federal Reserve has predicted a slower economic growth of 2.3% in 2019 compared to the 3.1% the country recorded last year.

The ongoing US government shutdown is not going to make things easy.

As for Europe, the European Central Bank (ECB) has warned of a slowdown this year. The warning came just six weeks after the ECB eased off on its bond-buying programme that was designed to reflate the economy.

Business sentiments on Germany, which is a barometer of what happens to the rest of Europe, is at the lowest.

As for Malaysia, the country is going through an economic transition of sorts following the change in government. Government spending has traditionally been the driver of the domestic economy when global growth slows.

The new government has cut back on spending, which is a necessary evil, considering that many of the projects awarded previously were inflated. Generally, the cost of most projects is to be shaved by at least 10% – and some by up to 50%.

However, the projects with revised costs have not got off the ground yet and contractors have not been paid their dues. For instance, contractors in the LRT 3 project had complained of not getting payments for work done a year ago.

Fortunately, a new contract for the LRT 3 has been signed. Hopefully, the contractors will be paid their dues speedily and work recommences on the ground fast.

The volatile oil prices are not helping improve revenue for the government.

Domestic demand is still growing, although people complain of their income levels not growing. This is because companies as a whole are also not doing as well as in previous years.

Nevertheless, even the most pessimistic of economist is looking at Malaysia chalking up a growth rate of more than 4.5% this year, which is respectable. The official forecast is 4.9%.

One of the reasons for the optimism is that they feel government revenue is expected to be much higher than expected, giving it the flexibility to push spending if the global economic scenario takes a turn for the worse.

According to the Treasury report for 2019, federal government revenue is to come in at about RM261bil, which is 10.7% higher than in 2018.

The amount is likely to be much higher, allowing the government the option to put more money in the hands of the people. It also allows the government to reduce corporate taxes, a move that would draw in investments.

Malaysia has a new government in place. What investors are looking for are signs of where all the extra revenue earned will go. They are also looking for the next growth catalyst.

The trade war and financial volatility is causing structural shifts in the global economy. It is impacting China, the US and Europe.

Eventually, the global crunch will come, but it is not likely to happen this year.

By m. shanmugam

 

Huawei Surprise goldfish in a bowl


Uncertain future: In this courtroom sketch, Meng sits beside a translator during a bail hearing in Vancouver. She
faces extradition to the US on charges of trying to evade US sanctions on Iran. – AP 
The arrest of Huawei ‘heiress’ has thrown a rare spotlight on the family of the reclusive smartphone giant founder, Ren Zhengfei.

WHEN Huawei CFO Sabrina Meng Wanzhou appeared on Wednesday in a Vancouver courtroom, clad in an unbranded green tracksuit, the moment was witnessed by a single reporter from the local Vancouver Sun newspaper who happened to notice her name on the hearings list that morning.

By the end of the day, Meng’s arrest in Canada at the request of Washington was the biggest story in the world.

And when her bail hearing resumed on Friday, Meng entered court to see about 100 reporters, craning to look at her through two layers of bulletproof glass.

Meng who faces extradition to the United States, was charged for helping Huawei allegedly cover up violations of US sanctions on Iran.

Like many top Chinese executives, Meng is a mysterious figure even in her home country, but the 46-year-old chief financial officer of Huawei Technologies had been widely tipped to one day take the helm of the tech giant her father founded.

That was until her shock arrest, a move that has entangled her in the protracted diplomatic tensions between Washington and Beijing.

Crucially, Meng is the daughter of Huawei founder Ren Zhengfei – one of China’s leading businessmen, an ex-People’s Liberation Army officer and an elected member of the 12th National Congress of the Communist Party of China.

In other words, Meng is part of China’s elite.

Her father Ren moves in the highest government circles in China and founded Huawei in 1988, after he retired from the Chinese armed forces. Born into a rural family in a remote mountainous town in the southwestern province of Guizhou, Ren rose to the equivalent rank of a deputy regimental chief in the PLA and served until 1983, according to his official Huawei biography.

Officials in some governments, particularly the United States, have voiced concern that his company is close to the Chinese military and government. Huawei has repeatedly insisted Beijing has no influence over it.

Ren is one of the most watched entrepreneurs in China and was on Time magazine’s list of 100 most influential people in the world in 2005 and again in 2013.

But like his elder daughter, Ren has largely kept a low profile.

Ren has married three times. His first wife was Meng Jun, daughter of a former senior official in Sichuan province, Meng Dongbuo; she bore Ren two children: Sabrina Meng Wanzhou and a son, Meng Ping.

Meng’s current wife is Yao Ling, who gave him a younger daughter, Annabel Yao, 20. In a rare move, the three posed last month for a family photoshoot for French lifestyle magazine Paris Match. Annabel, a Harvard computer science student, became a sensation at last month’s Le Bal des Debutantes (or Crillon Ball) in Paris.

Ren’s third wife is Su Wei who, according to Chinese media reports, is a millennial who was formerly his secretary.

Interestingly, all his children opted not to take on their father’s surname – Meng adopted her mother’s surname after her parents divorced. According to Chinese news websites, Meng’s brother Ping, who also works for Huawei, followed her in taking their mother’s surname to “avoid unnecessary attention” – though the son was also known as Ren Ping in the past.

(This practice is not uncommon among the families of China’s elite. The co-founder of Chinese auction house China Guardian, Wang Yannan, opted not to take her father’s surname – she is the daughter of late Chinese premier Zhao Ziyang.)

Born in 1972, Meng joined the company in 1993, obtained a master’s degree from Huazhong University of Science and Technology in 1998, and rose up the ranks over the years, mostly holding financial roles.

In her first media appearance before the Chinese press in 2013, Meng said she had first joined the company as a secretary“whose job was just to take calls”.

In the interview with China’s 21st Century Business Herald, Meng said she began her first job at China Construction Bank after graduating with her first degree in 1992.

Arrested Meng: Like her father, the Huawei CFO had led a quiet life, out of the spotlight. – Reuters

Arrested Meng: Like her father, the Huawei CFO had led a quiet life, out of the spotlight. – Reuters

“I joined Huawei one year later because a branch closed its operations due to the business integration [of CCB],” said Meng, describing her early jobs in Huawei as “very trivial”.

Meng has served in various roles at the company since, until her latest role as the Hong Kong-based CFO of Huawei.

In 2003, Meng established Huawei’s globally unified finance organisation, with standardised structures, financial processes, financial systems, and IT platforms.

Since 2005, Meng has led the founding of five shared service centers around the world, and she was also the driver behind completion of a global payment center in Shenzhen, China. These centres have boosted Huawei’s accounting efficiency and monitoring quality, providing accounting services to sustain the company’s rapid overseas expansion.

Meng has also been in charge of the integrated financial services (IFS) transformation program, an eight-year partnership between Huawei and IBM since 2007. This has helped Huawei develop its data systems and rules for resource allocation, and improve operating efficiency and internal controls.

In recent years, Meng has focused on advancing detailed financial management at Huawei, working to align these efforts with the company’s long-term development plans.

Meng’s importance at Huawei became apparent in 2011, when she was first named as a board member. Company insiders describe her as capable and hardworking. Earlier this year, Huawei promoted Meng, to vice-chairwoman as part of a broader reshuffle. Meng is one of four executives who hold the vice-chair role, while retaining her CFO position. Despite assertions by Ren that none of his family members would succeed him in the top job, it is widely speculated that she was being groomed to take over the reins of the company eventually.

Married with a son and a daughter, Meng’s revelation that her husband did not work in the industry, dispelled the speculation she was married to a senior Huawei executive.

Meng did not conduct public interviews before 2013 and has seldom mentioned her personal life until recently, when she used her son to illustrate the importance of persistence.

“My son did not want to go swimming one day and he almost knelt on the ground and begged my husband so that he would not have to go. But he was rejected,” Meng said in a speech at Chongqing international school in 2016. “Now my son is proud to represent his school in swimming competitions.”

Meng recently made a speech at a Singapore academic conference in 2018, in which she talked of Huawei’s future role in technology development.

“Without universities, the world would be left in darkness. Without industry, science would be left in the ivory tower,” said Meng. “The fourth industrial revolution is on the horizon and artificial intelligence is one of its core enabling technologies. Huawei is lucky to be part of it.”

While her brother, Meng Ping, as well as her father’s younger brother and his current wife all work at Huawei and related companies, none has held such senior management roles.

“The other family members are in the back office, Sabrina is CFO and sits on the board,” a Huawei source said. “So she is viewed as the boss’s most likely successor.”

But her fate now is uncertain.

She faces up to 30 years’ jail for the alleged crime. Her lawyer in Canada, David Martin, had told the court that Meng posed no flight risk and should be granted bail. To flee would shame her in front of her father and all of China, said Martin.

“Her father would not recognise her. Her colleagues would hold her in contempt. She would be a pariah,” he said.

Meng leaned forward in her seat and dabbed at her eyes with a tissue.

When the hearing adjourned, she was led away with her head bowed, a goldfish in a bowl that is the biggest story in the world. – South China Morning Post

Younger Huawei daughter: ‘I’m just a normal girl’

Arresting Yao: ‘My daily life is actually pretty boring compared to this.’

JUST last month, the reclusive Huawei founder Ren Zhengfei made headlines by appearing in French lifestyle magazine Paris Match with his younger daughter and current wife.The daughter, Annabel Yao, 20, posed with a smile in front of a grand piano with her mother, identified by the magazine as Yao Ling, and Ren, who wore a blue shirt with his hand resting on her shoulder.

Suddenly, the whole family are making headlines again – even if for quite different reasons.

Few outsiders had previously heard of the younger daughter, a Harvard computer science student and ballerina. But Yao recently made a high-profile appearance at the exclusive Le Bal Debutante ball in Paris.

While Le Bal des Debutantes in Paris each year is a nod to the tradition of young society ladies entering the elite social scene of Europe, these days it courts modern debutantes, aged 16 to 21, who are chosen for their looks, brains and famous parents – prominent in business, entertainment and politics.

They parade in glamorous couture gowns, waltz with their cavaliers – young men who accompany the “debs” for the evening – and take part in photo shoots and interviews.

The schedule at the event, organised by Ophélie Renouard, is full of young women such as Baroness Ludmilla von Oppenheim, from Germany; Julia McCaw, daughter of AT&T founder Craig McCaw; and Yao – one of three debutantes chosen for the opening waltz this year.

“I definitely treated this as a debut to the world,” said Yao after the ball. “From now on, I’ll no longer be this girl living in her own world, I’ll be stepping into the adult world where I have to watch my own actions and have my actions be watched by others.”

Today’s Le Bal, is a diverse affair, a microcosm of the shifting tides of the global elite. Of the 19 debutantes of 2018, there were young ladies from India and America, Europeans from Portugal, France, Belgium and Germany, as well as Hong Kong’s Angel Lee, Kayla Uytengsu from the Philippines and China’s Yao.

Yao – who has lived in Britain, Hong Kong and Shanghai – was one of several Chinese debutantes in recent years. Hollywood offspring, such as the daughters of actors Forest Whitaker, Bruce Willis and Sylvester Stallone, have also become Le Bal regulars.

“All the girls were down-to-earth, easygoing, helpful and outgoing. No one was pretentious,” said Yao.

“All of them attended top universities or high schools like Stanford, Brown and Columbia, so it’s a group of girls who are privileged, but also work really hard.”

 

Diverse affair: Today’s ‘Le Bal’ is a microcosm of the shifting tides of the global elite like Yao (far right, front row).

 

As they swapped their jeans for tiaras and couture gowns and trade teenage antics for waltzing, the girls got to play fairytale princesses for three days and make their grand debut in high society.

They all arrived in Paris two days before the ball to meet, socialise with other girls and their cavaliers (Yao’s cavalier was the young Count Gaspard de Limburg-Stirum), rehearse and take part in portrait sessions.

Girls are given questionnaires about the fashion styles they like, and then choose from a selection. Yao donned a champagne gold J Mendel gown.

“An American designer with a very French style I wanted something modern,” she said. “I’m not super girlie inside, so I prefer something more chic and not so princessy It’s very elegant, and I’m not a fan of very [strongly] pigmented hues. I also loved the tulle texture of the dress, as it reminds me of a ballerina.”

“I definitely feel very honoured to be included, as there are only 19 girls in the world this year,” Yao added. “It means I have to work harder, try to accomplish great things in my life and be a role model for other girls.”

She said: “As people who have more privilege than others, it’s more important for us to help those with less opportunity. I want to get involved in philanthropy and charity I still consider myself a normal girl; it’s important for me to work hard and better myself every day.

“My daily life is actually pretty boring compared to this. I usually live like a normal student.”

Computer science is a heavy subject with a high workload, so she studies a lot. Her spare time is often taken up at the Harvard Ballet company (she’s been dancing since childhood). “I try to dance as much as possible,” she said.

A quick glance at the Ivy League student’s social media shows her jetting around the world wearing Dior, Louis Vuitton and Saint Laurent, but she’s quick to show her serious side. This summer, she did an internship at Microsoft “on a team focusing on machine learning and image recognition”.

However, she noted: “As much as I enjoy coding, I enjoy personal interactions a lot I have a passion for fashion, PR and entertainment.”

In the future, she sees herself working on the business side of technology. “I’ll try to integrate the tech knowledge I have,” she said. “I don’t think I’ll be a software engineer but maybe I’ll be more on the management side. I enjoy building connections.” – South China Morning Post

Growing stronger, opening wider key to resolving Huawei crisis

Huawei is now facing its most severe test since it became the world-renowned innovative tech company.

With executive’s arrest, US wants to stifle Huawei

The Chinese government should seriously go behind the US tendency to abuse legal procedures to suppress China’s high-tech enterprises. It should increase interaction with the US and exert pressure when necessary. China has been exercising restraint, but the US cannot act recklessly. US President Donald Trump should rein in the hostile activities of some Americans who may imperil Sino-US relations.

 

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In custody: A profile of Meng is displayed on a computer at a Huawei store in Beijing. The Chinese government, speaking
through its embassy in Canada, strenuously objected to the arrest, and  demanded Meng’s immediate release.  
AP

China leads the way as world’s billionaires get even richer


The United States created 53 new billionaires in 2017, down from 87 five years ago
China produced around
two new billionaires a week last year as the fortunes of the world’s
ultra-rich soared by a record amount, a report said Friday.Read more at: https://phys.org/news/2018-10-china-world-billionaires-richer.html#jCp
China produced two new billionaires a week last year as the fortunes of the world’s ultra-rich soared by a record amount – AFP

China produced around two new billionaires a week last year as the fortunes of the world’s ultra-rich soared by a record amount, Swiss banking giant UBS and auditors PwC said.

Billionaires’ wealth enjoyed its “greatest-ever” increase in 2017, rising 19 percent to $8.9 trillion ($7.8 billion euros) shared among 2,158 individuals, said the report by Swiss banking giant UBS and auditors PwC.

But Chinese billionaires expanded their wealth at nearly double that pace, growing by 39 percent to $1.12 trillion.

“Over the last decade, Chinese billionaires have created some of the world’s largest and most successful companies, raised living standards,” said Josef Stadler, head of Ultra High Net Worth at UBS Global Wealth Management.

“But this is just the beginning. China’s vast population, technology innovation and productivity growth combined with government support, are providing unprecedented opportunities for individuals not only to build businesses but also to change people’s lives for the better.”

The report said China minted two new billionaires a week in 2017, among more than three a week created in Asia.

In the Americas region, the wealth of billionaires increased at a slower rate of 12 percent, to $3.6 trillion, with the United States creating 53 new billionaires in 2017 compared to 87 five years ago.

Currency appreciation saw European billionaires’ wealth grow 19 percent although the number of billionaires rose by just 4.0 percent to 414.

Wealth transition from just five families accounted for 30 percent of the continent’s wealth expansion, the study said.

It warned of lower economic growth in the United States and China if the trade war between the two countries escalates.

“US and Asia ex-Japan equities could fall by 20 percent from their mid-summer 2018 levels.”

Asia challenging US dominance

For China’s young billionaires “the country’s fundamentals of a huge population and rising technology will continue to offer fertile conditions for entrepreneurs to grow their businesses,” the study said.

It there were only 16 Chinese billionaires as recently as 2006.

“Today, only 30 years after the country’s government first allowed private enterprise, they number 373 – nearly one in five of the global total.”

It said 97 percent of them are self-made, many of them in sectors such as technology and retail.

Billionaires from Asia, especially in the Chinese city of Shenzhen, are now challenging the traditional dominance of Americans as technology entrepreneurs.

“In 2017, they equalled America’s level of venture capital funding for start-ups, registered four times as many Artificial-Intelligence-related patents and three times as many blockchain and crypto-related patents as their US counterparts.”

Ravi Raju, head of Asia Pacific Ultra High Net Worth at UBS Global Wealth Management, said Asia’s billionaires “are young and relentless. They are constantly transforming their companies, developing new business models and shifting rapidly into new sectors.”

The report said that globally, self-made billionaires have driven 80 percent of the 40 main breakthrough innovations over the last 40 years.
UP AND OUT OF POVERTY – Xi Jinping https://youtu.be/SYWz2bwCUEE

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© 2018 AFP /Phys.org

Asia’s billionaires see fastest wealth growth: report 
September 17, 2014 

 

 Asia’s billionaires see fastest wealth growth: report

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Read more at: https://phys.org/news/2018-10-china-world-billionaires-richer.html#jCp

Asia’s billionaires see fastest wealth growth: report



September 17, 2014

Asia’s billionaires led by Chinese tycoons enjoyed the
fastest increase in their wealth this year compared to their peers in
the rest of the world, a report said Wednesday.

Read more at: https://phys.org/news/2018-10-china-world-billionaires-richer.html#jCp

 

Tariff war threatens world trading system


TODAY marks another milestone in the escalating global trade war that threatens to shake the foundations of the world trading system and cause economic uncertainty at a time of financial fragility. It’s an altogether bad development that adds more gloom to global economic prospects.

Last week, the United States announced it would slap an additional 10% tariff on US$200bil worth of imports from China. Hours later, China said it would put 5% to 10% extra tariffs on US$60bil of imports from the US.

Both sets of tariff increases come into effect today. But that’s not all.

The US also said it would raise the extra tariffs on the US$200bil of imports from 10% now to 25% at the end of the year. And if China retaliates (which it now has), the US might slap higher tariffs on yet another US$267bil of Chinese imports.

This comes on top of tariffs on an initial US$50bil worth of imports that the US had placed on Chinese imports a few months ago, and equivalent tariffs on US$50bil on US imports that China imposed as retaliation.

And even before that, the US had put extra tariffs on steel and aluminium imports from all countries, except a few that were exempted for the time being.

The US is also threatening to put tariffs on imported auto vehicles and parts, including those from Europe. That is on hold because of a bilateral deal reached, but could be re-ignited if President Donald Trump is not satisfied with Euro­pean behaviour.

The US itself is experiencing negative effects of this trade war. The prices of the initial US$50bil of imported Chinese products have started to go up in the US, raising costs for both consumers and producers.

The Chinese are similarly affected. Exports of both countries are also bound to decline, and this will eventually affect their overall economic growth.

There will be collateral effects on other countries. In Asia, those that are integrated in the global supply chain will find less demand for their exports of components to China. The effect on Malaysia is projected by analysts to be around 0.4 to 0.7 percentage point of GNP in 2019.

This could be offset by positive effects. Some companies producing in China are considering relocating to other countries, including Malaysia, to escape the US’ punitive tariffs. And some Malaysian products may become cheaper than Chinese products, which will now attract extra duties.

But it is likely that the bad effects will outweigh any such good effects, at least in the short run.

It is clear that the US is to blame for the trade war. Its unilateral actions are against the spirit and rules of the trading system, and have in fact undermined its legitimacy and viability.

The steel and aluminium tariffs were imposed under the US security clause of its domestic trade law, while the other tariff increases are under Section 301 of the trade law. The US actions are against various World Trade Organisation (WTO) rules.

Challenges to the US unilateral measures have been taken by China and other countries at the WTO. If the US is found in violation, which is quite likely, it has to stop its actions or face retaliation: the countries that win the cases heard by the WTO panels of experts are allowed to impose equivalent tariffs on US products.

However, the US has engineered a crisis in the WTO’s dispute settlement system so that soon the outcome of successful cases against it cannot be implemented.

This is because the US is now paralysing the WTO’s Appellate Body by refusing to allow new members of the body to be appointed to replace those retiring. Soon there will be only three members left, out of a full body of seven. Two more will be retiring in January 2019. A minimum of three members is needed to sit on a case.

Thus, if a lower-level panel rules against the US’ unilateral actions, and the US lodges an appeal that cannot be heard because there are not enough appellate body members, the panel decision cannot be enforced.

This would make the WTO quite a toothless organisation. There would be no legal remedy to enforce penalties for breaking the WTO laws. Countries that impose unilateral tariff increases can get away with it. In turn, other countries would also do the same.

The rules-based trade system is already starting to break down. We are now seeing blatant protectionism by the US and retaliation by affected countries. Within months, the trade war could spread, with the law of the jungle becoming more prominent.

Tears will not be shed in the developing countries if some rules cannot be upheld anymore, such as the WTO’s TRIPS agreement on intellectual property. The free trade economist Jagdish Bhagwati has said the TRIPS treaty does not belong in the WTO.

But what all members like about the WTO is its role in ensuring the predictability that their exports can sell in the markets of its members, with tariffs at rates agreed to at the WTO.

If that predictability is lost, then there can be a lot of uncertainty, as one country after another can unilaterally impose extra tariffs on other countries, which may then trigger retaliation.

This breakdown of the trading system may be the more serious effect of what started as a US-initiated trade war.

Trump may not care what happens to the system, as he has said many times that the WTO is a terrible organisation that the US should leave. And his recent actions, in fact, seem calculated to undermine, if not destroy it.

It is a new world we are looking at, in a scenario that would not have appeared possible a year or even months ago.

Policy makers, companies, analysts and the public should ponder about this, even as they follow the details of the tit-for-tat trade war that the US is waging against China and other countries.

Martin Khor is adviser of the Third World Network. The views expressed here are entirely his own.

Credit: Global Trend by Martin Khor

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We also hope that the Chinese public gets to know the causes and effects of the event and the steadiness of the Chinese government’s policies. No matter how long China-US trade conflicts last, China is doing what it should. China is honest and principled and a major trade power with intensive strengths. No one can take us down.

US hysterical in blocking sci-tech exchanges

The US is anxious about its temporary gains and losses. One minute it wants Sino-US exchanges, but the next it worries China is taking advantage. Its relevant policies are bound to change all the time. Its latest decision is like the trade war. Washington’s purpose is to drag Beijing down, but it will mostly hurt itself.

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Vanishing Jobs Growth Spells Deep Trouble for South Korea


 

 
Not-so-nice figures: Moon has seen his popularity slide amid criticism that he’s hurting employment by
aggressively increasing the minimum wage. — AP

Unemployment and jobs growth in South Korea haven’t looked so bad since the wake of the global financial crisis, undermining President Moon Jae-in’s economic agenda.

Data released Wednesday show the unemployment rate jumping to 4.2 percent, the highest since early 2010, and much greater than any economists forecast. Jobs growth slumped to just 3,000 last month, also the worst figure in more than eight years.

Moon, who came into office pledging to create jobs and raise incomes for regular workers, has seen his popularity slide amid criticism that he’s hurting employment by aggressively increasing the minimum wage.

While pay hikes planned for this year and 2019 are here to stay, Finance Minister Kim Dong-yeon said the government would consider adjusting some policies.

He conceded that the jobs market wouldn’t improve much anytime soon.

Disappearing Jobs Growth

  • Number of jobs added: South Korea added just 3,000 jobs in August, the least since 2010

Source: Statistics Korea

Moon’s administration points to the fallout from corporate restructuring and the shrinking working-age population as the source of the problems in the labour market. Businesses counter that hiking the minimum wage 16% this year, with another bump of almost 11% to come next year, has made job layoffs inevitable.

Small business owners in particular, from convenience stores to fast-food franchises, have shed workers.

Adding to the economic unease in South Korea is the risk that US President Donald Trump may hit car exporters with auto tariffs, even after Seoul agreed to renegotiate its trade deal with the US.

Unemployment Spike

South Korea’s unemployment rate in August reached the highest since 2010
  • Seasonally adjusted unemployment rate
Source: Statistics Korea

South Korean bonds climbed and the won fell after jobs figures, which appeared to squash any near-term prospect of the central bank raising interest rates.

The finance minister said economic policies that are geared toward wage-based growth are moving in the “right direction”. Yet the government also acknowledged the need for more communication and market analysis in order to gain trust from companies and the people, he said.

The presidential office described the recent increase in unemployment as inevitable pain that accompanies a change in the structure of the economy, Yonhap News reported.

Like many other countries, South Korea is experiencing a widening gap between the rich and the poor. It’s confounding policy makers and exacerbating political divisions. — Bloomberg

The Damocles index by Nomura warns of fiscal tension in Malaysia, score accross coountries, the hits and misses 1996~20118


PETALING JAYA: Allowing a larger fiscal deficit and running the risk of a sovereign credit rating downgrade in 2019 could cause balance of payments stress, given Malaysia’s high short-term external debts and low foreign exchange (forex) reserves, said Nomura.

Following the reversal of fiscal reforms like goods and services tax (GST) and the removal of fuel subsidies, the new government now faces the tough choice of either cutting spending at the cost of growth, or allowing a larger fiscal deficit and the risk of a sovereign credit rating downgrade in 2019.

According to a Nomura global research report, Malaysia’s Damocles score in July 2018 was 86.9, below the 100 threshold.

The Damocles index by Nomura summarises macroeconomic and financial variables into a single measure to assess an economy’s vulnerability to a currency crisis.

The oil price slump of 2014 to 2016 was a major shock for Malaysia, one of the few net-oil and gas exporters in Asia.

“While Bank Negara initially expanded forex reserves to defend the ringgit, it eventually allowed a sharp depreciation in 2015 which boosted export competitiveness.

“Malaysia has proved resilient and its current account remained in surplus, benefiting from a diversified economy and fiscal reforms,” said Nomura.

Three countries in the region, namely, Thailand, Indonesia, and the Philippines, have a Damocles score of zero, while Vietnam has a moderate Damocles score of 35.

The Bank of Thailand is signalling policy normalisation to build policy space and reduce financial stability risks following a prolonged period of exceptionally low interest rates. This is as headline consumer price index (CPI) inflation returned to within the 1% to 4% inflation target and economy growing at potential.

Thailand’s current account surplus as a percentage of gross domestic product (GDP) has been sizeable since 2015, driven by weak domestic demand and, more recently, growing tourism revenues as well as an export recovery.

“Over this period, forex reserves rose sharply, and they are now at very favourable adequacy levels relative to both imports and short-term external debts.

“The fiscal deficit is expected to widen slightly in 2018, as the government increases spending to support populist policies targeting low-income earners, in the run-up to the election in early 2019,” said Nomura, adding that real interest rates are falling gradually and remain marginally positive, as inflationary pressures have been stubbornly weak.

Over in Indonesia, a negative terms-of-trade shock in 2014 raised the Damocles score in 2014 to 2016, but it has fallen back to zero due to Bank Indonesia’s build-up of forex reserve buffers and government reforms that improved foreign direct investment (FDI) inflows.

While depreciation pressures have risen again in 2018, BI has acted decisively with 125 basis points in policy rate hikes to date.

“We expect another 25 basis points, with the risk of more.

“Bank Indonesia maintains a flexible forex regime and a dual-intervention framework in forex and bond markets, as well as introduced macro-prudential measures, like requiring residents to hedge external exposure,” said Nomura.

The research house added that Bank Indonesia has also strengthened policy coordination with the Finance Ministry, which is implementing policies to reduce the current account deficit, while prioritising a credible 2019 budget despite upcoming presidential elections.

Sword of Damocles hangs over Sri Lanka

PETALING JAYA: Sri Lanka is at risk of an exchange rate crisis mainly due to its still-weak fiscal finances and a fragile external position.

Sri Lanka charted the highest Damocles score of 175, among 30 emerging market (EM) economies.

The Damocles index by Nomura summarises macroeconomic and financial variables into a single measure to assess an economy’s vulnerability to a currency crisis.

A score above 100 suggests a country is vulnerable to an exchange rate crisis in the next 12 months, while a reading above 150 signals that a crisis could erupt at any time.

Sri Lanka has large refinancing needs, with foreign exchange (forex) reserves of less than five months of import cover and high short-term external debt of US$ 7.5bil.

“Political stability also remains an issue, as recent resignations have weakened the government (its term ends mid-2020) and despite retaining a simple majority, complicates the task of continuing to implement International Monetary Fund (IMF)-induced reforms.

“However, without IMF support, the risk of a currency crisis would be higher,” said Nomura in its global research report.

Meanwhile, South Africa, Argentina, Pakistan, Egypt, Turkey and Ukraine are currently vulnerable to an exchange rate crisis, having Damocles scores of more than 100.

“Based on our definition, Argentina and Turkey are experiencing currency crises, while Argentina, Egypt, Sri Lanka and Ukraine have turned to the IMF for assistance, leaving Pakistan and South Africa as the standouts.

“As investors focus more on risk, it is important not to lump all EMs together as one homogeneous group; Damocles highlights a long list of countries with very low risk of currency crises,” said Nomura.

Eight countries, namely, Brazil, Bulgaria, Indonesia, Kazakhstan, Peru, Philippines, Russia and Thailand, have Damocles scores of zero.

It is notable that China’s Damocles index has maintained since dropping to 36.9 in late 2017 from 62.4 in October 2017.

The index far below the 100 threshold suggests that the risk of an exchange rate crisis in China is limited.

Nomura concurred that China’s balance of payment position remains healthy, given it has the world’s largest foreign exchange reserves at US$3.1 trillion, as of July 2018.

“However, we highlight that its pockets are not as deep as they once were, given that current account deficits at minus 0.4% of gross domestic product (GDP) in the first half of 2018 may occur more frequently, net direct investment inflows may moderate further, and external debt has risen significantly.

“Moreover, we see domestic challenges from weakening aggregate demand and other fundamental problems, and external risks from the escalation in China-US trade tensions and trade protectionism,” said Nomura.

As for India, its Damocles score has fallen to 25 in the third quarter of 2018, from 56 during 2012 to 2013.

India’s most recent currency crisis occurred in 2013 and was due to weak domestic macro fundamentals and worsening external funding conditions. Since then, consumer price index (CPI) inflation has moderated to about 4.5% in 2018 from 9.7% in 2012, as has the current account deficit at an estimated -2.5% of GDP, compared to minus 5% in 2012. Furthermore, India’s central bank has a sufficient forex reserve buffer of 9.3 months of import cover versus 6.4 in 2012.

“However, given India runs a current account deficit, it remains vulnerable to bouts of global risk aversion. Higher oil prices and portfolio outflows are its key external vulnerabilities.

“Aside from these, the key risks stem from the government turning more populist ahead of the 2019 general elections (worsening domestic fundamentals) and a sharper-than-expected domestic growth slowdown (triggering equity outflows),” said Nomura.

The Damocles index comprises eight indicators that are found to be the best predictors of exchange rate crises in the 30-country sample, in which there have been 54 crises since 1996. It includes five single indicators which are import cover, short-term external debt or exports, forex reserves or short-term external debt, broad money or forex reserves and real short-term interest rate.

On the other hand, the three joint indicators are non-foreign direct investment (FDI) gross inflows of one-year and three-year, fiscal and current account, as well as current account and real effective exchange rate deviation. To date, Damocles has correctly signalled 67% of the past 54 crises in Nomura’s sample, including the Asian financial crisis (1997 to 1998), Russian financial crisis (1998) and the 2018 EM currency crises in Argentina and Turkey.

“The advantage of Damocles lies in its objective nature in letting the data speak, not clouded by conventional misperceptions or biases based on past experiences. While the results achieved are encouraging, but given the inherent limitations of any early warning system, it would be foolish to make any exaggerated claims.

“For instance, Brazil’s Damocles score of zero implies very low external vulnerability; yet the Brazilian real (BRL) has depreciated more than 10% in August alone due to an uncertain presidential election outlook,” said Nomura. – The Star

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